Globalization and Stock Market Returns

Lam Swee Sum () and Ang William Wee-Lian ()
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Lam Swee Sum: National University of Singapore
Ang William Wee-Lian: PrimePartners Corporate Finance Pte. Ltd

Global Economy Journal, 2006, vol. 6, issue 1, 28

Abstract: With increasing globalization, to what extent do stock market returns reflect global or domestic risk factors? We find a significant relationship between stock market returns and the global market risk factor and macroeconomic factors respectively. In particular, global factors offer four times more explanatory power than domestic factors for developed market stock returns. Yet domestic factors are as important as global ones in emerging economies. Our method allows for the proxies of the state variables to be endogenously determined. The relationship between macroeconomy and stock market returns is robust after accounting for the market factor, firm size and book-to-market characteristics.

Keywords: globalization; macroeconomic risk factors; global risk factors; domestic risk factors (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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DOI: 10.2202/1524-5861.1118

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